If you own a business, you know how challenging it is to manage your finances. Oftentimes, it feels you can never have enough in your budget to grow your business.
A self-declaration loan can be just what you need. The idea behind the self-declaration loan is to secure your existing assets and grow your resources. If you can use the loan to scale your business, you have a better chance of maximising your earning potential.
But how exactly can you use this loan to your advantage? We’ll look at who these loans are for, how they work, and whether they’re right for you.
Self-declaration loans were created for people who were either self-employed or who didn’t have a regular income. When you apply to borrow money, you’re required to prove your income via pay stubs, tax returns, etc. Lenders may ask for up to three years worth of bank statements and financial records that show you have enough money coming in to meet your monthly payment schedule.
But when you’re first working to get a business off the ground, you don’t have the same paperwork as someone with a steady full-time job. Or you may need a loan even though you don’t have three years of working history behind you.
Instead of penalising people for striking out on their own or for circumstances beyond their control, these loans can be borrowed without the need for standard account statements. The amount you borrow is based on the income you declare to the lender.
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There are two main types of self-declaration loans, sometimes referred to as low-doc and no-doc. These terms refer to the amount of documentation you need for the loan.
With a low-doc loan, you still need to justify the income that you declare. Acceptable documentation varies by lender, but typically includes business activity statements (BAS), bank statements, interim financial statements, or traditional bank statements. You can also provide a letter from your accountant verifying your income.
While many of these documents are the same as those requested by a traditional lender, the way they’re reviewed will be different. Your job is to show strong returns over the course of 12 or 24 months as opposed to hitting certain benchmarks over the past 36 months. If you happen to have poor credit history, you should know that this isn’t necessarily a deal-breaker. Lenders may place more value on your future potential during the approval process.
As with any loan, you’re encouraged to provide as much positive information as possible. For example, you may want to present a few details about how your business fills a certain niche. Or you may want to bring along documentation for anything that could be considered collateral, such as the details of the commercial property you’re using for your business.
If you’re unable to provide these documents, then a no-doc loan may be the best option for you. With a no-doc loan, you won’t need any evidence of your income. You may need to sign a statement regarding your ability to pay back the loan, but you won’t need to search for statements or tax returns in order to qualify.
All no-doc loans are NCCP unregulated — as the purpose for borrowing is not for consumer use — and must meet at least one of the following:
If you’re using a commercial property to secure your loan, the lender will scrutinise the location, condition, and resell value. Ideally, they want to see a unit that’s larger than 50 square meters or under 2 hectares if you own commercial land.
While these loans can be a lifesaver for businesses working to get off the ground, the lender is still taking a sizable risk. You’ll see this reflected in both the way in which your application is evaluated and the interest rates you’re given. Your specific rate will be determined by your credit history and the type of collateral you present. Each lender will have their own criteria, so it helps to do a little homework before applying or partnering with a property advisor.
If you’re unable to pay back the loan within a few years (and sometimes in as little as six months), the interest rates will increase after the deadline has passed.
A low-doc loan, which can be used to purchase property, has lower rates than a no-doc loan but higher rates than a conventional loan.
On average, you’ll see anywhere from 0.5 to 1.5% more than standard loans. For short-term loans, the interest rates may reach far higher than a conventional loan. While these figures can be daunting for business owners, they may be the only thing standing in your way of success. You need to secure your assets first before you can start growing your business (and your income).
The good news is that the number of people applying for these loans has skyrocketed over the past few years, and it’s not because the economy is bad. On the contrary, people feel emboldened to live their dreams and start answering only to themselves. It’s helped inspire lender confidence, which has made these loans even more accessible.
Being a business owner is no small feat today. When you have so many things to do on your plate, it’s easy to push the financials to the back burner. But self-declaration loans may be the answer you’re looking for to reach the next level. You can learn more about this type of loan here.
Shore Financial is here to help business owners get the money they need without having to fill out endless forms. If you want to avoid the tedious application process, it’s time to request a free quote.
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